We previously blogged about the IRS' issuance last month of final regulations clarifying and providing examples of when revocation of tax-exempt status under section 501(c)(3) of the Internal Revenue Code is appropriate because of private inurement even when intermediate sanctions under Code section 4958 also apply. The regulations also provided several examples of when an organization serves a private interest instead of a public interest and so provides a prohibited private benefit. Yesterday the IRS issued the following corrections to three of the examples, one relating to private benefit and the other two to private inurement. The full text of the corrections is provided below with the changed provisions show in bold and italics. The most significant correction is the clarification that if a "principal," as opposed to the sole, activity of an organization serves private interests then the organization will not qualify for tax-exempt status under section 501(c)(3). No guidance is provided, however, regarding how to measure whether a particular activity is a principal activity of an organization.

§ 1.501(c)(3)-1 [Amended]

Par. 2. Section 1.501(c)(3)-1 is amended as follows:

1. In paragraph (d)(1)(iii) Example 2. (ii), in the second sentence, the language "As a result, the soleactivity of O serves the private interests of these artists." is removed and the language "As a result, the principal activity of O serves the private interests of these artists." is added in its place.

2. In paragraph (f)(2)(iv) Example 2. (iii), in the sixth sentence, the language "Beginning in Year 4, however, as O's exempt function activities grow, the size and scope of the excess benefit transactions that occurred in Year 3 become less and less significant as compared to the size and extent of O's regular and ongoing exempt function activities." is removed and the language "Beginning in Year 4, however, as O's exempt function activities grow, the size and scope of the excess benefit transactions that occurred in Year 3 become less and less significant as compared to the size and scope of O's regular and ongoing exempt function activities." is added in its place.

3. In paragraph (f)(2)(iv) Example 4. (iii), in the fourth sentence, the language "By adopting a conflicts of interest policy and significant new contract review procedures and by terminating C, O has implemented safeguards that are reasonably calculated to prevent future violations." is removed and the language "By adopting a conflicts of interest policy and new contract review procedures and by terminating C, O has implemented safeguards that are reasonably calculated to prevent future violations." is added in its place.